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CHAPTER-4 ADMISSION OF A PARTNER

Reconstitution of Partnership:
The agreement between partners defines the relation between them and whenever there is a
change in their relationship, it amounts to reconstitution of the partnership firm.
A partnership is reconstituted when:
1. There is a change in the profit-sharing ratio among existing partners, or
2. A new partner is admitted, or
3. Retirement of an existing partner, or
4. Death of an existing partner, or
5. Takeover, merger or amalgamation of two or more partnership firms.

Admission of a partner:
A partner may be admitted to an existing partnership with the consent of all the partners.
On his admission, the incoming partner automatically gets a right to share the profits of the firm
as well as share the assets of the firm.

Effects of admission of a partner:

1. The old partnership comes to an end and new partnership is commenced.

2. The new partner acquires the same right as old partner i.r.t share of profits and share in the
assets of the firm subject to the partnership agreement.
3. The incoming partner contributes his share of capital.
4. The incoming partner may also be required to provide for acquiring his share in the
goodwill of the existing firm. Goodwill may be valued by the partners at the time of
admission.
5. The incoming partner may request the existing partners to revalue the assets and liabilities
before entering into partnership. Any profit or loss arising on such revaluation will have to
be adjusted among the existing partners.
6. Adjustments may be required for making the capitals as proportionate to the sharing ration
among partners.

Procedure/steps involved in accounting at the time of admission of a partner:

1. Calculate new profit-sharing ratio among all partners and sacrificing ratio of old partners.
2. Make adjustments for goodwill.
3. Make adjustment for any reserve or surplus or accumulated losses that appear in the
balance sheet before admission of new partner.
4. Revalue assets and liabilities.
5. Make capital adjustments among all partners.
6. Prepare revised capital accounts and fresh balance sheet after admission of new partner.
Let us discuss the steps involved at the time of admission of a partner in detail:

I. New Profit-sharing ratio:

New profit-sharing ratio has to be calculated for sharing the future profits among them
including the new partner.

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New profit-sharing ratio is sometimes given in the question, hence no need to calculate it again.
But sometimes it has to be calculated where information is available as to how the new partner
acquires his share of profits.
New partner may acquire his share in the future profits from the old partners in any of the
following ways:
a. From all partners in their old PSR, or
b. From all the partners in an agreed ratio, or
c. From some old partners only in an agreed ratio, or
d. As a fraction of the share of old partners.

New profit-sharing ratio is calculated as follows:

1. For old partners:
New share = Old share – Sacrificed share
(Old share is calculated from old PSR, sacrificed share is calculated from the details
given in the question regarding how the new partner gets his share from old partners.)
2. For new partner:
New share = ∑ Sacrificed share of profits by old partners in favour of new partner
3. New profit-sharing ratio for all partners including new partner:
NPSR = Ratio of new share of all partners as calculated in point 1 and 2 above.

Example: if A, B, C were old partners, then old PSR is given as A:B:C. A new partner D is admitted to their
partnership. Now old partners must sacrifice some of their share of profits in favour of the new partner. The
profits sacrificed by old partners is clubbed together to find out the share of new partner in future profits of the
firm. Finally, new profit-sharing ratio between all partners is written as A:B:C:D.

II. Sacrificing Ratio:

Sacrificing ratio is the ratio in which the old partners surrender or sacrifice their share of profits
in favour of the incoming partner.

Sacrificed share = Old share – New share

Sacrificing Ratio = Ratio of sacrificed share by all old partners

Notes:

1. Where nothing is given as to how the new partner gets his share in future, then it is
assumed that he gets his share from all the old partners in their old PSR. Hence the old
PSR becomes the sacrificing ratio among old partners.
2. When the new PSR is not given and nothing is given regarding how the new partner gets
his share in future, then new PSR between the old partners remain same.
3. Before attempting any question make sure that old PSR, new PSR and sacrificing ratio is
available. It will be helpful when everything is available as these ratios are important for
making various adjustments among partners at the time of admission of a partner.
4. When the any old partner starts to gain on the admission of a partner due to fresh
arrangement between them, then his sacrificed share is written with minus sign.

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III. Adjustment of Goodwill:

When the new partner is admitted into the partnership, then the old partners estimate the
amount of goodwill of their business. Now since the goodwill has been generated by the old
partners over a period of time, they are justified in asking the new partner to compensate
them for any sacrifice they make in their share of goodwill in favour of new partner.

From accounting point of view:

1. The new partner will bring in amount equal to his acquired share of goodwill. This amount
is termed as premium for goodwill, which is finally distributed among the sacrificing
partners in their sacrificing ratio.

2. If the new partner compensates the sacrificing partners by paying this premium privately
outside the business, then no accounting treatment is done in books of partnership firm.

3. Following journal entries are done at the time of adjusting goodwill:

a. For amount of premium for goodwill brought by new partner:

Cash/Bank/Asset A/c Dr.

To Premium for Goodwill A/c

b. For adjusting the premium for goodwill among sacrificing partners:

Premium for goodwill A/c Dr.

To Sacrificing Partners’ Capital/Current A/c

c. For withdrawal of amount of premium for goodwill by old partners:

Partners’ Capital/current A/c Dr.

To Cash/Bank A/c

4. Sometimes goodwill appears in the existing balance sheet of the old partners. The existing
goodwill will always be written off between old partners in their old PSR before making
any further adjustment of goodwill. After existing goodwill has been written off, then fresh
valuation of goodwill will be done and then the above mention journal entries will be
passed.

For writing off the value of existing goodwill:

Old partners’ Capital/current A/c Dr.
To Goodwill A/c

5. Sometimes the incoming partner is unable to bring the premium for goodwill. In such a
case his capital account will be debited to realize the premium for goodwill in order to
compensate the sacrificing partners. Inability of new partner to bring his share of goodwill
does not mean that the adjustment of goodwill will not be made.

For realising premium for goodwill from new partner’s capital account:

New Partner’s Capital/current A/c Dr.

To Premium for goodwill A/c

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For adjusting the premium for goodwill among sacrificing partners:

Premium for goodwill A/c Dr.

To Sacrificing Partners’ Capital/Current A/c

Note: Instead of passing the above two entries, the goodwill in such a case can be adjusted
by passing capital to capital entry as follows:

New Partner’s Capital/current A/c Dr.

To Sacrificing Partners’ Capital/current A/c

6. Sometimes the incoming partner brings only part premium for goodwill. In such a case the
remaining part premium is realised from his capital account and then adjusted accordingly.

For receiving part premium for goodwill and realising remaining part premium from
capital account:

Cash/Bank/Assets A/c Dr.

New Partner’s Capital/current A/c Dr.
To Premium for goodwill A/c

For adjusting the premium for goodwill among sacrificing partners:

Premium for goodwill A/c Dr.

To Sacrificing Partners’ Capital/Current A/c

Concept of Hidden Goodwill or Inferred Goodwill

Sometimes the amount of goodwill is not given but it is required to be calculated on the basis of
new profit-sharing ratio and the amount of capital contributions of each partner. The goodwill so
estimated by using this method is called inferred or hidden goodwill.

For example: A and B are equal partners with capitals of ₹ 50000/- and ₹ 100000/- respectively. C is
admitted for 1/4th share and brings ₹ 60000/- as his share of capital. Find out hidden goodwill.
Total capital on the basis of new partner’s share and capital contribution will be ₹ 240000/-, however the total
capitalization of the new firm of A,B,C is ₹ 210000/-. Hence value of goodwill is ₹ 30000/-.

IV. Revaluation of Assets and Liabilities:

The value of assets and liabilities may differ from their book values at the time of admission of a
partner. In such a situation the incoming partner asks the existing partners to revalue the assets
and liabilities to their present value so that his capital contribution may be calculated and he is
not put to any advantage or disadvantage because of incorrect values of assets and liabilities.
For the purpose of revaluation of assets and liabilities, a new account names ‘Revaluation
Account’ is opened. It is a nominal account and shows the net profit or loss on revaluation of
assets and liabilities.
Journal entries for carrying out the revaluations are:
1. For increasing the value of an asset:

Asset A/c Dr.

To Revaluation A/c

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2. For decreasing the value of an asset:

Revaluation A/c Dr.

To Asset A/c

3. For increasing the value of a liability:

Revaluation A/c Dr.

To Liability A/c

4. For decreasing the value of a liability:

Liability A/c Dr.

To Revaluation A/c

5. For recording of an unrecorded asset:

Asset A/c Dr.

To Revaluation A/c

6. For recording of an unrecorded liability:

Revaluation A/c Dr.

To Liability A/c

7. For distributing the net profit on revaluation among old partners in their old PSR:

Revaluation A/c Dr.

To Old Partners’ Capital/current A/c

8. For distributing the net loss on revaluation among old partners in their old PSR:

Old Partners’ Capital/current A/c Dr.

To Revaluation A/c

It must be noted that when all revaluation of assets and liabilities have been recorded then the
assets and liabilities which have been revalued shall be shown at their revalued figures in the
balance sheet after admission of new partner.
Dr. Revaluation A/c Cr.
Particulars Amount Particulars Amount ₹
₹
To Decrease in asset XX By Increase in Asset XX
To Increase in Liability XX By Decrease in Liability XX
To Unrecorded Liability XX By Unrecorded Asset XX
To Profits transferred in Old By Loss transferred in Old PSR:*
PSR:* A ---
A --- B ---
B --- XX XX
Total: XXXX Total: XXXX
* Any one

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Concept of Memorandum Revaluation Account

Sometimes the partners may decide to adjust the values of all assets and liabilities on their
revaluation but without altering the same in the balance sheet. This method helps the partners to
adjust any gain or loss on revaluation of assets and liabilities and at the same time keeps the assets
and liabilities at their present values even after admission of new partner.
This is done by making a memorandum revaluation account. This account is not a part of book
keeping and accounting process and is made in separate set of books only for the purpose of
making adjustment in partners’ capital accounts on admission of partner.
The memorandum revaluation has two parts. In the first part the same treatment is done just like
revaluation account. In the second part the reverse treatment is given to nullify the effects of
revaluation so that the values of assets and liabilities remain unaltered.
However, where in the first part the profit/loss is distributed among old partners in their old PSR;
in the second part the loss/profit is distributed among all partners including new partner in their
new PSR.

Dr. Memorandum Revaluation A/c Cr.

Particulars Amount Particulars Amount
₹ ₹
To Decrease in asset XX By Increase in Asset XX
To Increase in Liability XX By Decrease in Liability XX
To Unrecorded Liability XX By Unrecorded Asset XX
To Profits transferred in Old By Loss transferred in Old PSR:*
PSR:* A ---
A --- B ---
B --- XX XX
To Increase in Asset XX By Decrease in asset XX
To Decrease in Liability XX By Increase in Liability XX
To Unrecorded Asset XX By Unrecorded Liability XX
To Profits transferred in New By Loss transferred in New
PSR:# PSR:#
A --- A ---
B --- B ---
C --- XX C --- XX
Total: XXXX Total: XXXX
# Any one

V. Adjustment of accumulated reserves, profits and losses:

The amount of reserves, profits and losses that appear in the balance sheet before the admission
of new partners belongs only to the old partners and that too in their old PSR.
Hence such amount of profits and losses are distributed among the old partners in their old PSR
on admission of a new partner.

Following journal entries are passed:

1. For distribution of reserves and profits:

General Reserve A/c Dr.
P&L A/c Dr.
Reserve Fund A/c Dr.
To Old Partners’ Capital/Current A/c

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2. For distribution of accumulated losses:

Old Partners’ Capital/Current A/c Dr.
To P&L A/c
To Deferred Revenue Expenditures A/c
To Misc. Expenditure A/c

VI. Adjustment of Workmen Compensation Fund:

Workmen compensation fund is a separate fund maintained by the business entity, factory or an
industrial unit, for use at the time of making payment as compensation to an employee who
suffers any injury during work. This fund is created by appropriation of profits by the partners on
an estimate basis therefore the fund balance may or may not be adequate. The WCF is shown
under the head reserves and surplus in the balance sheet. The following 4 situations may arise at
the time of admission of a partner:

1. Situation I – There is no award of compensation due by the firm

In such a situation, no claim is due on the firm and the amount of fund is distributed among old
partners in old PSR.

Workmen Compensation Fund A/c Dr.

To Old Partners’ Capital/Current A/c

2. Situation II – There is award of compensation due by the firm for an amount less than fund
balance
In such a situation, the claim due on the firm is shown as liability in the new balance sheet and the
excess amount of WCF is distributed among old partners in old PSR.

Workmen Compensation Fund A/c Dr.

To Workmen Compensation Liability A/c
To Old Partners’ Capital/Current A/c

3. Situation III – There is award of compensation due by the firm for an amount equal to fund
balance
In such a situation, the claim due on the firm is shown as liability in the new balance sheet by
transferring the amount of WCF to WCL account.

Workmen Compensation Fund A/c Dr.

To Workmen Compensation Liability A/c

4. Situation IV – There is award of compensation due by the firm for an amount more than
fund balance

In such a situation, the claim due on the firm is shown as liability in the new balance sheet by
transferring the amount of WCF to WCL account along with additional amount (excess of WCL
over WCF) from Revaluation account.

Workmen Compensation Fund A/c Dr.

Revaluation A/c Dr.
To Workmen Compensation Liability A/c

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VII. Adjustment of Investment Fluctuation Reserve:

Investment fluctuation fund is maintained to face the loss which may happen due to fall in the
market value of the investments on a future date. IFR is shown under reserves and surplus in the
balance sheet. This reserve is created by appropriation of profits by the partners on an estimate
basis therefore the reserve balance may or may not be adequate to meet the loss on devaluation of
investments. The following 3 situations may arise at the time of admission of a partner:

1. Situation I – There is no fall in value of investments

In such a situation, there is no need for maintaining the reserve balance and the same is distributed
among the old partners in old PSR.

Investment Fluctuation Reserve A/c Dr.

To Old Partners’ Capital/Current A/c

2. Situation II – There is a fall in the value of investments by an amount less than the reserve
balance

In such a situation, the value of the investments in brought down to the actual market value and
the balance of the IFR is distributed among old partners in old PSR.

Investment Fluctuation Reserve A/c Dr.

To Investment A/c
To Old Partners’ Capital/Current A/c

3. Situation II – There is a fall in the value of investments by an amount more than the
reserve balance

In such a situation, the value of the investments in brought down to the actual market value and
the balance of the diminution in value is adjusted through revaluation account.

Investment Fluctuation Reserve A/c Dr.

Revaluation A/c Dr.
To Investment A/c

VIII. Adjustment of Partners’ Capital Accounts:

The partners may decide that on the admission of a new partner, the capital accounts may be
adjusted. There can be two ways of adjusting the capital accounts of partners. These are:
1. Adjustment of old partner’s capital accounts on the basis of new partner’s share of profit and
capital contribution, or making capital accounts of old partners proportionate to new PSR.
2. Calculation of incoming partners’ capital contribution on the basis of old partners’ capital.
Let us discuss the two methods in detail.

A. Adjustment of old partner’s capital accounts on the basis of new partner’s share of profit
and capital contribution, or making capital accounts of old partners proportionate to new
PSR

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Steps:

1. Prepare the capital accounts of all partners after making all the other adjustments given in
the question except capital adjustment and find out the closing balance of each partner’s
capital account.
2. Calculate the total capital of the firm on the basis of new partners’ share of profits and his
capital contribution.
Total Capital of the firm = Capital of new partner
Share of profit of new partner

3. Determine the capital of each partner by dividing the total capital as above in the new PSR.

4. Find out the surplus or deficiency in capital account of each partner.

Surplus = Existing closing capital as per point 1 - Capital as per point 3
Deficit = Capital as per point 3 - Existing closing capital as per point 1

5. Adjust the capital of old partner for surplus or deficiency. Such adjustment can be made
either in cash or through current account of partner.

B. Calculation of incoming partners’ capital contribution on the basis of old partners’ capital.

Steps:

1. Determine the existing capital of old partners after all adjustments except capital adjustment.

2. Calculate the total capital of the new firm as:

Total capital of the firm = Total capital of old partners

Total of new share of old partners
3. Determine the share of new partner as:

Capital of new partner = Total capital of firm * Share of profits

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Test Your Knowledge & Practice

Calculation of New Profit-Sharing Ratio and Sacrificing Ratio

1. X, Y and Z are partners sharing profits and losses in the ratio of 5:3:2. They admit A into partnership
and give him 1/5th share of profits. Find the new profit-sharing ratio.
(Ans: New PSR:- 20:12:8:10)

2. P and Q are sharing profits in the ratio of 7:3. They admit R for 3/7th share in the firm which he takes
2/7th from P and 1/7th from Q. Calculate new profit-sharing ratio.
(Ans: New PSR:- 29:11:30)

3. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. Z is admitted as partner with
1/4 share in profit. Z acquires his share from X and Y in the ratio of 2:1. Calculate new profit-sharing
ratio.
(Ans: New Ratio:- 26:19:15)

4. X and Y were partners sharing profits in the ratio of 3:2. They admitted P and Q as new partners. X
surrendered 1/3rd of his share in favour of P and Y surrendered 1/4th of his share in favour of Q.
Calculate new profit-sharing ratio of X, Y, P and Q.
(Ans: New Ratio:- 4:3:2:1)

5. A and B are partners sharing profits and losses in the proportion of 7:5. They agree to admit C, their
Manager, into partnership who is to get 1/6th share in the profits. He acquires this share as 1/24th
from A and 1/8th from B. Calculate new profit-sharing ratio.
(Ans: A:B:C:- 13:7:4)

6. Aman and Saman are partners in a firm sharing profits and losses in the ratio of 7:3. Aman surrenders
2/10th from his share and Saman surrenders 1/10th from his share in favour of Ruhi; a new partner.
Calculate new profit-sharing ratio and sacrificing ratio.
(Ans: New PSR:- 5:2:3; Sacrificing Ratio:- 2:1)

7. R and S are partners sharing profits in the ratio of 5:3. T joins the firm as a new partner. R gives 1/4th
of his share and S gives 1/5th of his share to the new partner. Find out new profit-sharing ratio.
(Ans: New PSR:- 75:48:37)

8. R and S are sharing profits in the ratio of 4:3. T joins and the new ratio among R, S and T is 7:4:3. Find
out the sacrificing ratio.
(Ans: Sacrificing Ratio:- 1:2)

9. A, B and C are partners sharing profits in the ratio of 4:3:2. D is admitted for 1/3rd share in future
profits. What is the sacrificing ratio?
(Ans: Sacrificing Ratio:- 4:3:2)

10. Find New Profit-sharing Ratio:

(i) A and B are partners in a firm sharing profits in the ratio of 3:2. C joins the firm. A surrender 1/4th
of his share and B 1/5th of his share in favour of C.
(ii) A and B are partners. They admit C for 1/4th share. In future, the ratio between A and B would be
2:1.
(iii) A and B are partners sharing profits and losses in the ratio of 3:2. They admit C for 1/5th share in
the profit. C acquires 1/5th of his share from A and 4/5th share from B.

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(iv) X, Y and Z are partners in the ratio of 3:2:1. W joins the firm as a new partner for 1/6th share in
profits. Z would retain his original share.
(v) A and B are equal partners. They admit C and D as partners with 1/5th and 1/6th share
respectively.
(vi) A and B are partners sharing profits/losses in the ratio of 3:2. C is admitted for 1/4th share. A and
B decide to share equally in future.
(Ans: (i) New PSR:- 45:32:23; (ii) New PSR:- 2:1:1; (iii) New PSR:- 14:6:5; (iv) New PSR:- 12:8:5:5; (v) New
PSR:- 19:19:12:10; (vi) New PSR:- 3:3:2)

11. A and B are partners sharing profits in the ratio of 3:2. C is admitted as a partner. The new profit-
sharing ratio among A, B and C is 4:3:2. Find out the sacrificing ratio.
(Ans: Sacrificing Ratio:- 7:3)

12. A and B are partners sharing profits in the ratio of 5:3. They admit C and the new profit-sharing ratio is
agreed at 4:2:1. Calculate the sacrificing ratio and the share of incoming partner.
(Ans: Sacrificing Ratio:- 3:5, Share of C: 1/7)

13. A and B are partners sharing profits and losses in the ratio of 3:2. They admit C into partnership for
1/4th share of the profit while A and B as between themselves sharing profits & losses equally.
Calculate the new profit-sharing ratio.
(Ans: New PSR:- 3:3:2, Sacrificing Ratio:- 9:1)

14. X and Y share profits and losses in the ratio of 3:5. Z is admitted for 3/10th share of profits; half of
which was gifted by X and the remaining share was taken by Z equally from X and Y. Calculate the
new profit-sharing ratio.
(Ans: New PSR:- 6:22:12)

15. A and B are in partnership sharing profits and losses as 3:2. C is admitted for 1/4 th share. Afterwards D
enters for a share of 20 paise in a rupee. Compute profit-sharing ratio of A, B, C and D.
(Ans: New PSR:- 9:6:5:5)

16. A and B are partners sharing profits in the ratio of 2:1. They admit C into partnership giving him 1/5
share in the profits which he acquires from A and B in the ratio of 1:2. Calculate the new profit-sharing
ratio.
(Ans: New PSR:- 3:1:1)

17. A and B are partners sharing profits in the ratio of 3:2. A surrenders 1/3rd of his share and B surrenders
1/4th of his share in favour of C, a new partner. Calculate new profit-sharing ratio & sacrificing ratio.
(Ans: New PSR:- 4:3:3, Sacrificing Ratio:- 2:1)

18. X and Y partners sharing profits and losses in the ratio of 3:2. They admit Z into partnership. X gives
1/3rd of his share while Y gives 1/10th from his share to Z. Calculate new profit-sharing ratio and
sacrificing ratio.
(Ans: New PSR:- 4:3:3; Sacrificing Ratio:- 2:1)

19. A, B and C are partners sharing profits in the ratio of 2:2:1. D is admitted as a new partner for 1/6th
share. C will retain his original share. Calculate the new profit-sharing ratio and sacrificing ratio.
(Ans: New PSR:- 19:19:12:10; Sacrificing Ratio:- 1:1)

20. A, B, C and D are in partnership sharing profits and losses in the ratio of 36:24:20:20 respectively. E
joins the partnership for 20% share and A, B, C and D in future would share profits among themselves
in the ratio of 3:4:2:1. Calculate new profit-sharing ratio after E's admission.
(Ans: New PSR:- 6:8:4:2:5)

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21. A and B were partners sharing profits in the ratio of 21:9, C was admitted for 9/21 share in profits.
Calculate the new profit-sharing ratio and sacrificing ratio.
(Ans: New PSR:- 14:6:15, Sacrificing Ratio:- 7:3)

22. A and B are partners sharing profits in the ratio of 3:2. They admit C, as a new partner who acquires
his share as 2/7th from A and 1/7th from B. Calculate the new profit-sharing ratio and sacrificing ratio.
(Ans: New PSR:- 11:9:15, Sacrificing Ratio:- 2:1)

Treatment of Goodwill

23. A and B are partners sharing profits and losses in the ratio of 2:1. They take C as a partner for 1/5th
share. The Goodwill Account appears in the books at its full value ₹ 15,000. C is to pay proportionate
amount as premium for goodwill which he pays to A and B privately. Pass necessary entries.
(Ans: Debit A's Capital A/c by ₹ 10,000; B's Capital A/c by ₹ 5,000 and Credit Goodwill A/c by ₹ 15,000; No
entry is required if goodwill is paid privately)

24. A and B are partners sharing profits and losses in the ratio of 2:5. They admit C on the condition that
he will bring in ₹ 14,000 as his share of goodwill in cash to be distributed between A and B. C's share in
the future profits or losses will be 1/4th. What will be the new profit-sharing ratio and what amount of
goodwill brought in by C will be received by A and B?
(Ans: A will get ₹ 4,000; B will get ₹ 10,000; Profit-sharing Ratio:- 6:15:7)

25. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. They admit C into
partnership for 1/5th share. C brings in ₹ 30,000 as capital and ₹ 10,000 as goodwill. At the time of
admission of C, goodwill appears in the Balance Sheet of A and B at ₹ 3,000. The new profit-sharing
ratio of the partners will be 5:3:2. Pass necessary entries.
(Ans: Dr. Premium for Goodwill A/c ₹ 10,000; Cr. A's Capital A/c and B's Capital A/c: ₹ 5,000 each in their
sacrificing ratio:- 1:1)

26. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. A new partner C is
admitted. A surrender 1/5th of his share and B surrenders 2/5th of his share in favour of C. For the
purpose of C’s admission, goodwill of the firm is valued at ₹ 75,000 and C brings in his share of
goodwill in cash which is retained in the firm's books. Journalize the above transactions.
(Ans: New Ratio: 12:6:7; Sacrificing Ratio: 3:4; C’s Share of Goodwill: ₹ 21,000)

27. B and C are in partnership sharing profits and losses as 3:1. They admit D into the firm, D paying a
premium of ₹ 15,000 for 1/3rd share of the profits. As between themselves, B and C agree to share the
future profits and losses equally. Draft Journal entries showing appropriations of the premium money.
(Ans: Dr. Premium for Goodwill A/c ₹ 15,000 and C’s Capital A/c ₹ 3,750; Cr. B's Capital A/c ₹ 18,750)

28. M and J are partners in a firm sharing profits in the ratio of 3:2. They admit R as a new partner. The
new profit-sharing ratio between M, J and R will be 5:3:2. R brought in ₹ 25,000 for his share of
premium for goodwill. Pass necessary Journal entries for the treatment of goodwill.
(Ans: Goodwill will be shared in between M and J equally)

29. A and B are in partnership sharing profits and losses in the ratio of 5:3. C is admitted as a partner who
pays ₹ 40,000 as capital and the necessary amount of goodwill which is valued at ₹ 60,000 for the firm.
His share of profits will be 1/5th which he takes 1/10th from A and 1/10th from B. Give Journal
entries and also calculate future profit-sharing ratio of the partners.
(Ans: Profit-sharing Ratio—21: 11: 8)

30. A and B are partners sharing profits and losses in the proportion of 7:5. They agree to admit C, their
Manager, into partnership who is to get 1/6th share in the business. C brings in ₹ 10,000 for his capital

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and ₹ 3,600 for the 1/6th share of goodwill which he acquires 1/24th from A and 1/8th from B. The
profits for the first year of the new partnership amount to ₹ 24,000. Make necessary Journal entries in
connection with C's admission and apportion the profits between the partners.
(Ans: Share of Profit: A: ₹ 13,000; B: ₹ 7,000; C: ₹ 4,000)

31. X and Y are partners sharing profits in the ratio of 3:1. Z is admitted as a partner for which he pays ₹
30,000 for goodwill in cash. X Y and Z decided to share the future profits in equal proportion. You are
required to pass a single Journal entry to give effect to the above arrangement.
(Ans: Dr. Cash A/c: ₹ 30,000 and Y's Capital A/c: ₹ 7,500; Cr. X's Capital A/c: ₹ 37,500)

32. X and Y are partners in a firm sharing profits in the ratio of 3:2. On April 1, 2023 they admit Z as a
new partner. The new profit-sharing ratio of X, Y and Z will be 5:5:3. Z contributed the following
assets towards his capital and for his share of Goodwill: Stock ₹ 48,000, Debtors ₹ 42,000, Land ₹
30,000. Plant and Machinery ₹ 54,000. On the date of admission of Z, the goodwill of the firm was
valued at ₹ 3,90,000. Record necessary journal entries in the books of the firm on Z admission.
(Ans: Sacrificing Ratio: 14:1)

33. X and Y are partners in a firm sharing profits in the ratio of 3:2. On 1st April, 2023, they admit Z as a
new partner for 1/4th share in the profits. Z contributed the following assets towards his capital and for
his share of goodwill: Stock ₹ 60,000; Debtors ₹ 80,000; Land ₹ 1,00,000, Plant and Machinery ₹
40,000. On the date of admission of Z, the goodwill of the firm was valued at ₹ 6,00,000. Record
necessary Journal entries in the books of the firm on Z's admission.

34. A and B are partners sharing profits in the ratio of 3:2. C is admitted paying a premium with 1/4th
share of profit of which he acquires 1/6th from A and 1/12th from B. The goodwill of the firm is
valued at ₹ 5,040. Goodwill already appears at ₹ 3,000. One half of goodwill is withdrawn by the
partners. Give the necessary journal entries.
(Ans: Sacrificing Ratio:- 2:1)

35. A and B are partners in a business sharing profits and losses in the ratio of 1/3rd and 2/3rd. On 1st
April, 2023, their capitals are ₹ 8,000 and ₹ 10,000 respectively. On that date, they admit C in
partnership and give him 1/4th share in the future profits. C brings in ₹ 8,000 as his capital and ₹ 6,000
as goodwill. The amount of goodwill is immediately withdrawn by the old partners in cash. Draft the
Journal entries and show the Capital Accounts of all the Partners. Calculate proportion in which
partners would share profits and losses in future.
(Ans: New Ratio—1:2:1)

36. A and B were partners in a firm sharing profits and losses in the ratio of 3:2. They admitted C as a new
partner for 3/7th share in the profit and the new profit-sharing ratio will be 2:2:3. C brought ₹ 2,00,000
as his capital and ₹ 1,50,000 as premium for goodwill. Half of their share of premium was withdrawn
by A and B from the firm. Calculate sacrificing ratio and pass necessary Journal entries for the above
transactions in the books of the firm.
(Ans: Sacrificing Ratio:- 11:4)

37. X and Y are partners sharing profits and losses equally. They admit Z for 1/4th share by paying ₹ 5,000
out of his share of ₹ 9,000 of goodwill. Goodwill already appears at ₹ 30,000. Give Journal entries to
record the above transactions.

38. A and B are partners sharing profits in the ratio of 2 :1. They admit C for 1/4th share in profits. C
brings in ₹ 30,000 for his capital and ₹ 8,000 out of his share of ₹ 10,000 for goodwill. Before
admission, goodwill appeared in books at ₹ 18,000. Give Journal entries to give effect to the above
arrangement.

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39. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. They admit Z as a partner
for 1/4th share. Z acquires his share from X and Y in the ratio of 2:1. The goodwill of the firm has been
valued at ₹ 14,400. Goodwill already appears at ₹ 9,000. Pass the necessary journal entries under each
of the following alternative cases:
(a) if Z brings his share of firm's goodwill in cash.
(b) If Z is unable to bring his share of firm's goodwill in cash.
(c) If Z brings only 60% of his share of firm's goodwill in cash.
(Ans: Sacrificing Ratio:- 2:1)

40. A and B are partners sharing profits in the ratio of 3:2. Their books show goodwill at ₹ 2,000. C is
admitted with 1/4th share of profits and brings in ₹ 10,000 as his capital but is not able to bring in cash
for his share of goodwill ₹ 3,000. Draft Journal entries.

41. On the admission of C, it was agreed that the goodwill of A and B should be valued at ₹ 30,000. C is to
get 1/4th share of profits. Previously A and B shared profits in the ratio of 3:2. C cannot bring in any
cash. Give Journal entries when in the books of A and B:
(a) there is no Goodwill Account and
(b) Goodwill appears at ₹ 10,000.

Hidden Goodwill

42. A and B are partners with capitals of ₹ 3,000 each. They admit C as a partner with 1/4th share in the
profits of the firm. C brings ₹ 4,800 as his share of Capital. The profit & Loss A/c showed a credit
balance of ₹ 2,400 as on date of admission of C. Give the necessary journal entry to record goodwill
and capital.
(Ans: Hidden Goodwill: ₹ 6,000)

43. A and B are partners in a firm with capital of ₹ 60,000 and ₹ 1,20,000 respectively. They decide to
admit C into the partnership for 1/4th share in the future profits. C is to bring in a sum of ₹ 70,000 as
his capital. Calculate amount of goodwill.
(Ans: Goodwill: ₹ 30,000)

44. Ajay and Vijay are partners in a firm with fixed capitals of ₹ 3,20,000 and ₹ 2,40,000 respectively. They
admitted Sunil as a new partner for 1/4th share in the profits of the firm on 1st April 2023. Sunil
brought ₹ 3,20,000 as his share of capital. Calculate value of goodwill and record necessary Journal
entries.
(Ans: Hidden Goodwill: ₹ 4,00,000)

45. Isha and Misha are partners in a firm sharing profits in the ratio of 3 : 2 respectively. The fixed capital
of Isha is ₹ 4,80,000 and Misha is ₹ 3,00,000. On 01.04.2023 they admitted Lisa as a new partner for
1/5th share in future profits. Lisa brought ₹ 3,00,000 as her capital. Calculate value of goodwill of the
firm and record necessary Journal entries on Lisa's admission.
(Ans: Hidden Goodwill: ₹ 4,20,000)

46. A and B are partners in a firm. They admit C as a new partner with 1/5th share in the profits of the
firm. C brings ₹ 5,00,000 as his share of capital. The value of the total assets of the firm was ₹ 15,00,000
and outside liabilities were valued at ₹ 5,00,000 on that date. Give necessary Journal entry to record
goodwill at the time of C's admission.
(Ans: Dr. C’s Capital A/c: ₹ 2,00,000; Cr. A's Capital: ₹ 1,00,000; and B's Capital A/c: ₹ 1,00,000)

47. A and B who share the profits & losses in the ratio of 3:2 are partners with Capitals of ₹ 18,000 and ₹
12,000. On date of C's admission, there appears P&L A/c (Cr.) balance ₹ 3,600. Reserves ₹ 33,000,

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Advertisement Expenditure (Deferred Revenue) ₹ 600. They admit C as a partner with 1/5th share in
the profits of the firm. C brings ₹ 24,000. Give the necessary journal entries on C's admission with
regard to capital and goodwill.
(Ans: Sacrificing Ratio: 3:2, Hidden Goodwill: ₹ 30,000)

48. Mr. A commenced business with a capital of ₹ 2,50,000 on 1st April, 2018. During the five years ended
31st March, 2023, the following profits and losses were made:
31st March, 2019—Loss ₹ 5,000 31st March, 2022—Profit ₹ 20,000
31st March, 2020—Profit ₹ 13,000 31st March, 2023—Profit ₹ 25,000
31st March, 2021—Profit ₹ 17,000
During this period, he had drawn ₹ 40,000 for his personal use. On 1st April, 2023, he admitted B into
partnership on the following terms:
B to bring for his half share in the business, capital equal to A's Capital on 31st March, 2023 and to
pay for the one-half share of goodwill of the business, on the basis of three times the average profit of
the last five years. Prepare the statement showing what amount B should invest to become a partner
and make entries to record the transactions pertaining to admission.
(Ans: B will have to bring ₹ 2,80,000 as Capital and ₹ 21,000 for Goodwill)

49. Mr. A commenced business with a capital of ₹ 3,00,000 on 1st Jan. 2018. During the five years, the
following profits and losses were made: I- Loss ₹ 6,000, II- Profit ₹ 15,600, III- Profit ₹ 20,400, IV-
Profit ₹ 24,000, V- Profit ₹ 30,000.
During this period, he had drawn ₹ 48,000 for his personal use. On 1st Jan. 2023, A admitted B into
partnership on the following terms: B to bring capital equal to A's Capital for his half share in the
business on 1st Jan. 2023 and to pay for one half share of goodwill of the business, valued on the basis
of three times the average profits of the last five years.
(Ans: B will bring ₹ 3,36,000 as Capital and ₹ 25,200 for Goodwill)

Reserves and Accumulated Profits/Losses

50. X and Y are partners in a firm sharing profits and losses in the ratio of 3:2. On 1st April, 2023, they
admit Z as a new partner for 1/5th share in profits. On that date, there was a balance of ₹ 1,50,000 in
General Reserve and a debit balance of ₹ 20,000 in the Profit and Loss Account of the firm. Pass
necessary Journal entries regarding adjustment of reserve and accumulated profit/loss.
(Ans: (i) Credit X by ₹ 90,000 and Y by ₹ 60,000; (ii) Debit X by ₹ 12,000 and Y by ₹ 8,000)

51. X and Y were partners in a firm sharing profits and losses in the ratio of 2:1. Z was admitted for 1/3rd
share in the profits. On the date of Z's admission, the Balance Sheet of X and Y showed General
Reserve of ₹ 2,50,000 and a credit balance of ₹ 50,000 in Profit and Loss Account. Pass necessary
Journal entries on the treatment of these items on Z's admission.
(Ans: Credit X by ₹ 2,00,000 and Y by ₹ 1,00,000)

52. Give the journal entry to distribute Workman Compensation Reserve of ₹ 36,000 at the time of
admission of Z, when there is no claim against it. The firm has two partners X and Y.
(Ans: Credit X and Y with ₹ 18,000 each)

53. Give the journal entry to distribute Workman Compensation Reserve' of ₹ 36,000 at the time of
admission of Z, when there is claim of ₹ 24,000 against it. The firm has two partners X and Y.
(Ans: Credit X and Y with ₹ 6,000 each)

54. Give the journal entry to distribute Investment Fluctuation Reserve of ₹ 2,400 at the time of admission
of Z, when Investments (market value ₹ 11,400) appear at ₹ 12,000. The firm has 2 partners X and Y.
(Ans: Credit X and Y with ₹ 900 each)

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55. Give the journal entry to distribute General Reserve of ₹ 2,400 at the time of admission of Z, when 25%
of General Reserve is to be transferred to Provision for Doubtful Debts. The firm has two partners X
and Y.
(Ans: Credit X and Y with ₹ 900 each)

56. An extract of the Balance Sheet of A & B sharing profits & losses in the ratio of 3:2 is as under:
Liabilities ₹ Assets ₹
General Reserve 3,000 Investments
Contingencies Reserve 270 (Market Value ₹ 11,400) 12,000
P&LA/c 1,800 Machinery Replacement
Investment Fluctuation Reserve 900 Fund Investment 600
Workmen's Compensation Reserve 720 Advertisement Expenditure
Machinery Replacement Fund 600 (Deferred Revenue) 600
Employees' Provident Fund 1,200
C is admitted for 1/5th share of profits. A claim on account of workmen's compensation is estimated at
₹ 90 only. Pass the necessary journal entries to adjust accumulated profits and losses.
(Ans: Credit for Share in Reserves: A: ₹ 3,600, B: ₹ 2,400, Debit for Share in Losses: A: ₹ 360, B: ₹ 240)

Revaluation of Assets & Liabilities, Preparation of Capital Accounts and Balance Sheet

57. At the time of admission of a new partner, the assets and liabilities were revalued. The following
revaluations were made:
(i) A Provision for Doubtful Debts @10% was made on Sundry Debtors (Sundry Debtors ₹ 50,000)
(ii) Creditors were written back by ₹ 5,000.
(iii) Building was appreciated by 20% (Book value of Building ₹ 2,00,000).
(iv) Unrecorded Investments were worth ₹ 15,000.
(v) A Reserve of ₹ 2,000 was made for an Outstanding Bill of repairs.
(vi) Unrecorded Liability towards suppliers was ₹ 3,000.
(vii) Value of Stock and Machinery to be reduced by 10% (Book Value of: Stock ₹ 1,00,000; Machinery
₹ 2,00,000).
Pass necessary Journal entries.

58. X, Y and Z are equal partners with capitals of ₹ 1,500; ₹ 1,750 and ₹ 2,000 respectively. They agree to
admit W into equal partnership upon payment in cash of ₹ 1,500 for 1/4th share of the goodwill and ₹
1,800 as his capital, both sums to remain in the business. The liabilities of the old firm amounted to ₹
3,000 and the assets, apart from cash, consists of Motor car ₹ 1,200, Furniture ₹ 400, Stock ₹ 2,650 and
Debtors ₹ 3,780. The Motor car and Furniture were revalued at ₹ 950 and ₹ 380 respectively.
Draft Journal entries to give effect to the above arrangement and also show Balance Sheet of the new
firm.
(Ans: Loss on Revaluation: ₹ 270, Balance Sheet Total: ₹ 11,280)

59. A and B were partners in a firm with capital of ₹ 72,000 and ₹ 96,000 respectively. They admitted C as
a partner for 1/4th share in profits on his payment of ₹ 1,20,000 as his capital and ₹ 54,000 for his share
of goodwill.
On the date of admission, the creditors of A and B were ₹ 36,000 and Bank overdraft was ₹ 9,000.
Their assets apart from cash included Stock ₹ 6,000; Debtors ₹ 24,000; Plant and Machinery ₹ 48,000;
Land and Building ₹ 1,20,000. It was agreed that Stock should be depreciated by ₹ 1,200; Plant and
Machinery by 20%, ₹ 3,000 should be written off as bad debts and Land and Building should be
appreciated by 25%.
Prepare the Revaluation Account, Capital Accounts of Partners and the Balance Sheet of the new firm.
(Ans: Profit on Revaluation: ₹ 16,200, Capital A/c Balances: A: ₹ 1,07,100, B: ₹ 1,31,100, C: ₹ 1,20,000, B/S
Total: ₹ 4,03,200)

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60. Following was the Balance Sheet of A and B who were sharing profits in the ratio of 2:1 as at 31st
March, 2023:
Liabilities ₹ Assets ₹
Capital A/cs: Building 25,000
A 15,000 Plant and Machinery 17,500
B 10,000 25,000 Stock 10,000
Sundry Creditors 32,950 Sundry Debtors 4,850
Cash in Hand 600
57,950 57,950
They agree to admit C into the partnership on the following terms:
(a) C was to bring in ₹ 7,500 as his capital and ₹ 3,000 as goodwill for 1/4th share in the firm.
(b) Values of the Stock and Plant and Machinery were to be reduced by 5%.
(c) A reserve was to be created in respect of Sundry Debtors ₹ 375.
(d) Building Account was to be appreciated by 10%.
Pass necessary Journal entries to give effect to the arrangements. Prepare Profit and Loss Adjustment
Account (or Revaluation Account), Capital Accounts and Balance Sheet of the new firm.
(Ans: Revaluation Profit: ₹ 750; Capital A/c’s: A: ₹ 17,500; B: ₹ 11,250; C: ₹ 7,500; Balance Sheet Total: ₹
69,200)

61. A, B and C are partners sharing profits and losses in the ratio of 3:2:1 respectively. Their Balance Sheet
as at 31st March, 2023 is as follows:
Liabilities ₹ Assets ₹
Capital A/cs: Land and Building 50,000
A 60,000 Plant and Machinery 40,000
B 60,000 Furniture 30,000
C 40,000 1,60,000 Stock 20,000
Creditors 30,000 Debtors 30,000
Bills Payable 10,000 Bills Receivable 20,000
Bank 10,000
2,00,000 2,00,000
D is admitted as a new partner on 1st April, 2023 for an equal share and is to pay ₹ 50,000 as capital.
Following are the adjustments required on D’s admission:
(a) Out of the Creditors, a sum of ₹ 10,000 was due to D which will be transferred to his capital.
(b) Advertisement Expenses of ₹ 1,200 are to be carried forward to next accounting period.
(c) Expenses debited in the Profit and Loss Account includes a sum of ₹ 2,000 paid for B's personal
expenses.
(d) A Bill of Exchange of ₹ 4,000 which was previously discounted with the banker, was dishonoured
on 31st March, 2023 but no entry has been passed for that.
(e) A Provision for Doubtful Debts at 5% is to be created against Debtors.
(f) Expenses on Revaluation amounted to ₹ 2,100 is paid by A.
Prepare necessary Ledger Accounts and Balance Sheet after D's admission.
(Ans: Loss on Revaluation: ₹ 600; Partners' Capital Accounts: A: ₹ 61,800; B: ₹ 57,800; C: ₹ 39,900; D: ₹ 50,000;
Balance Sheet Total: ₹ 2,39,500)

62. A and B are partners in a firm sharing profits and losses in the ratio of 2:1 respectively. On 31st March,
2023, their Balance Sheet stood as follows:
Liabilities ₹ Assets ₹
A's Capital 1,60,000 Buildings 80,000
B's Capital 1,20,000 Furniture 24,000
General Reserve 96,000 Stock 48,000
Creditors 64,000 Debtors 2,40,000
Cash at Bank 48,000
4,40,000 4,40,000

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It was decided to admit C into the firm with effect from 1st April, 2023 subject to the following terms
and conditions;
(a) C will bring in ₹ 84,000 of which ₹ 36,000 will be treated as his share of goodwill to be retained in
the business.
(b) C will be entitled to 1/4th share of the profits.
(c) ₹ 9,000 is to be provided for Doubtful Debts.
(d) Depreciation on Furniture is to be provided @ 5%.
(e) Stock is to be revalued at ₹ 42,000.
You are required to prepare necessary Ledger Accounts and Balance Sheet of the firm after the
admission of C from the above information.
(Ans: Loss on revaluation: ₹ 16,200; Capital Account: A: ₹ 2,37,200; B: ₹ 1,58,600; C: ₹ 48,000; Balance Sheet
Total: ₹ 5,07,800; Bank Balance: ₹ 1,32,000)

63. Sachin and Saurav were in partnership business sharing profits and losses in the ratio of 2:3
respectively. Their Balance Sheet as at 31st March, 2023 was:
Liabilities ₹ Assets ₹
Sundry Creditors 12,435 Cash in Hand 710
capital A/cs: Cash at Bank 11,925
Sachin 34,050 Sundry Debtors 5,500
Saurav 34,050 68,100 Stock 18,000
Furniture 4,400
Building 40,000
80,535 80,535
On 1st April, 2023 they admitted Rahul into partnership for 1/3rd share in the future profits on the
following terms:
(a) Rahul is to bring in ₹ 30,000 as his capital and ₹ 20,000 as goodwill, which sum is to remain in the
business.
(b) Stock and Furniture are to be reduced in value by 10%.
(c) Building is to be appreciated by ₹ 15,000.
(d) Provision of 5% is to be made on Sundry Debtors for Doubtful Debts.
Show Profit and Loss Adjustment Account (Revaluation Account), Capital Accounts of Partners and
opening Balance Sheet of the new firm.
(Ans: Revaluation Profit: ₹ 12,485; Capital A/c’s: Sachin: ₹ 47,044; Saurav: ₹ 53,541; Rahul: ₹ 30,000; Balance
Sheet Total: ₹ 1,43,020)

64. X and Y share profits in the ratio of 5:3. Their Balance Sheet as at 31st March, 2023 was:
Liabilities ₹ Assets ₹
Creditors 15,000 Sundry Debtors 20,000
Employees' Provident Fund 10,000 Less: Provision B/D 600 19,400
Workmen Comp. Reserve 5,800 Stock 25,000
Capital A/cs: Land and Building 5,000
X 70,000 Fixed Assets 80,000
Y 31,000 1,01,000 Profit and Loss A/c 2,400
1,31,800 1,31,800
They admit Z into partnership with 1/8th share in profits on this date. Z brings ₹ 20,000 as his capital
and ₹ 12,000 for goodwill in cash. Z acquires his share entirely from X. Following revaluations are also
made:
(a) Employees' Provident Fund is to be increased by ₹ 5,000.
(b) All Debtors are good. Therefore, no provision is required on Debtors.
(c) Stock includes ₹ 3,000 for obsolete items.
(d) Creditors are to be paid ₹ 1,000 more.
(e) Fixed Assets are to be revalued at ₹ 70,000.

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Prepare Journal entries, necessary accounts and new Balance Sheet. Also, calculate new profit-sharing
ratio.
(Ans: Loss on Revaluation: ₹ 18,400; Capitals: X: ₹ 72,625; Y: ₹ 25,375; Z: ₹ 20,000; Balance Sheet Total: ₹
1,49,000; New Ratio: 4 :3 :1)

65. X and Y are partners sharing profits and losses equally. Their Balance Sheet as on 31st March, 2023 is
given below:
Liabilities ₹ Assets ₹
Capital A/cs: Land and Building 1,50,000
X 1,50,000 Plant and Machinery 1,00,000
Y 1,00,000 2,50,000 Furniture and Fittings 25,000
Current A/cs: Stock 75,000
X 40,000 Debtors 75,000
Y 30,000 70,000 Less: Provision for DD 5,000 70,000
Creditors 1,30,000 Bills Receivable 30,000
Bills Payable 50,000 Bank 50,000
5,00,000 5,00,000
Z is admitted as a new partner for 1/4th share under the following terms;
(a) Z is to introduce ₹ 1,25,000 as capital.
(b) Goodwill of the firm was valued at nil.
(c) It is found that the creditors included a sum of ₹ 7,500 which was not to be paid. But it was also
found that there was a liability for Compensation to Workmen amounting to ₹ 10,000.
(d) Provision for doubtful debts is to be created @ 10% on debtors.
(e) In regard to the Partners' Capital Accounts, present fixed capital method is to be converted into
fluctuating capital method.
(f) Bills of ₹ 20,000 accepted from creditors were not recorded in the books.
(g) X provides ₹ 50,000 loan to the business carrying Interest @ 10% p.a.
You are required to prepare Revaluation Account, Partners' Capital Accounts, Bank Account and the
Balance Sheet of the new firm.
(Ans: Loss on Revaluation: ₹ 5,000; Partners' Current A/c’s: X: ₹ 37,500; Y: ₹ 27,500; Partners' Capital A/c’s: X:
₹ 1,87,500; Y: ₹ 1,27,500; Z: ₹ 1,25,000; Balance Sheet Total: ₹ 6,72,500)

66. A and B share profits and losses equally. The following is the Balance Sheet of A and B as on
31.03.2023:
Liabilities ₹ Assets ₹
Investment Fluctuation Reserve 2,000 Cash 35,000
Workmen Comp. Reserve 5,000 Debtors 15,000
Bills Payable 23,000 Investments 20,000
Capital Accounts: Fixtures 10,000
A 40,000 Goodwill 20,000
B 30,000 70,000
1,00,000 1,00,000
On the same date, they agree to admit C for 1/7th share in future profits. For this purpose, following
adjustments are agreed upon:
(a) C is to bring ₹ 30,000 as capital and ₹ 10,000 as goodwill.
(b) Market value of Investment is ₹ 15,000.
(c) Claim on Account of Workmen Compensation Fund is ₹ 3,000.
(d) Goodwill is not to appear in new firm at all.
(e) Debtors are to be revalued at ₹ 10,000.
You are required to prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of
A, B and C.
(Ans: Revaluation Loss: ₹ 8,000; Capitals: A: ₹ 32,000; B: ₹ 22,000; C: ₹ 30,000; Total of Balance Sheet: ₹
1,10,000)

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67. Rajesh and Ravi are partners sharing profits in the ratio of 3:2. Their Balance Sheet at 31st March, 2023
stood as:
Liabilities ₹ Assets ₹
Creditors 38,500 Cash 2,000
Outstanding Rent 4,000 Stock 15,000
Capital A/cs: Prepaid insurance 1,500
Rajesh 29,000 Debtors 9,400
Ravi 15,000 44,000 Less: Provision for Doubtful 400 9,000
Debts
Machinery 19,000
Building 35,000
Furniture 5,000
86,500 86,500
Raman is admitted as a new partner introducing a capital of ₹ 16,000. The new profit-sharing ratio is
decided as 5:3:2. Raman is unable to bring in any cash for goodwill. So, it is decided to value the
goodwill on the basis of Raman's share in the profits and the capital contributed by him. Following
revaluations are made:
(a) Stock to depreciate by 5%; (b) Provision for Doubtful Debts is to be ₹ 500; (c) Furniture to
depreciate by 10%; (d) Building is valued at ₹ 40,000.
Show necessary Ledger Accounts and Balance Sheet of new firm.
(Ans: Profit on Revaluation: ₹ 3,650; Capital Accounts: Rajesh: ₹ 32,825; Ravi: ₹ 18,095; Raman: ₹ 12,730;
Balance Sheet Total: ₹ 1,06,150; Hidden Goodwill: ₹ 16,350)

68. A and B are partners in a firm in the ratio of 3:2. They admit C as a partner on 1st April, 2023 on which
date the Balance Sheet of the firm was:
Liabilities ₹ Assets ₹
Capital A/cs: Building 50,000
A 60,000 Plant and Machinery 30,000
B 40,000 1,00,000 Stock 20,000
Creditors 20,000 Debtors 10,000
Bank 10,000
1,20,000 1,20,000
You are required to prepare the Revaluation Account, Partners' Capital Accounts and Balance Sheet of
the new firm after considering the following:
(a) C brings in ₹ 30,000 as capital for 1/4th share. He also brings ₹ 10,000 for his share of goodwill.
(b) Part of the Stock which had been included at cost of ₹ 2,000 had been badly damaged in storage
and could only expect to realize ₹ 400.
(c) Bank charges had been overlooked and amounted to ₹ 200 for the year 2022-23.
(d) Depreciation on Building of ₹ 3,000 had been omitted for year 2022-23.
(e) A credit for goods for ₹ 800 had been omitted from both purchases and creditors although the
goods had been correctly included in Stock.
(f) A charge of ₹ 1,200 for insurance premium was debited in the Profit and Loss Account of 2022-23
but ₹ 600 of this applied to the period after 31st March, 2023.
(Ans: Loss on Revaluation: ₹ 5,000; Partners’ Capital Accounts: A: ₹ 63,000; B: ₹ 42,000; C: ₹ 30,000; Balance
Sheet Total: ₹ 155,800)

69. The Balance Sheet of A and B as at 31st March 2023 was:

Liabilities ₹ Assets ₹
Capital A/cs; Goodwill 10,000
A 86,000 Land and Building 60,000
B 64,000 1,50,000 Plant and Machinery 70,000
General Reserve 20,000 Stock 36,000
Sundry Creditors 31,200 Sundry Debtors 20,000

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Cash at Bank 4,000

Cash in Hand 1,200
2,01,200 2,01,200
A and B are in partnership sharing profits and losses in the ratio of 3:2. On 1st April, 2023, they
admitted C into partnership. He paid ₹ 50,000 as his capital but no amount was brought towards
goodwill which was valued at ₹ 40,000 for the firm. He acquired 1/5th share in the profits, equally
from both partners. It was also decided that:
(a) Land and Building be written off by ₹ 20,000.
(b) Stock be written down by ₹ 3,200.
(c) A Provision of ₹ 1,000 be created for Doubtful Debts.
(d) An amount of ₹ 1,200 included in Sundry Creditors, be written back as it is no longer payable.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.
(Ans: Loss on Revaluation: ₹ 23,000; Capital A/c’s: A: ₹ 82,200; B: ₹ 62,800; C: ₹ 42,000; Balance Sheet Total: ₹
2,17,000)

70. P and S were partners in a firm sharing profits in the ratio of 3:2. Their Balance Sheet on 31.3.2023 was
as follows:
Liabilities ₹ Assets ₹
Bank Overdraft 20,000 Cash 8,000
Creditors 30,000 Debtors 30,000
Provision for Bad Debts 1,000 Bills Receivable 40,000
General Reserve 15,000 Stock 50,000
V's Loan 20,000 Buildings 90,000
Capital Accounts: Land 1,48,000
P 1,00,000
S 1,80,000 2,80,000
3,66,000 3,66,000
On 01.04.2023 they admitted V as a new partner on the following conditions:
(a) V will get 1/8th share in the profits of the firm.
(b) V's Loan will be converted into his capital.
(c) The Goodwill of the firm was valued at ₹ 80,000 and V brought his share of goodwill premium in
cash.
(d) Provision for Bad Debts was to be made equal to 5% of the Debtors.
(e) Stock was to be decreased by 5%.
(f) Land was to be appreciated by 10%.
Prepare Revaluation Account, Capital Accounts of P, S and V and the Balance Sheet of the new firm as
on 01.04.2023.
(Ans: Profit on Revaluation: ₹ 11,800; Capital A/c’s: P: ₹ 1,22,080; S: ₹ 1,94,720; V: ₹ 20,000; Total of Balance
Sheet: ₹ 3,88,300)

71. A and B are partners in a firm. The net profit of the firm is divided as follows: 1/2 to A, 1/3 to B and
1/6 carried to a Reserve. They admit C as a partner on 1st April, 2023 on which date, the Balance
Sheet of the firm was:
Liabilities ₹ Assets ₹
Capital A/cs: Building 50,000
A 50,000 Plant and Machinery 30,000
B 40,000 90,000 Stock 18,000
Reserve 10,000 Debtors 22,000
Creditors 20,000 Bank 5,000
Outstanding Expenses 5,000
1,25,000 1,25,000
Following are the required adjustments on admission of C:

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(a)C brings in ₹ 25,000 towards his capital.

(b)C also brings in ₹ 5,000 for 1/5th share of goodwill.
(c)Stock is undervalued by 10%.
(d)Creditors include a contingent liability of ₹ 4,000, which has been decided by the court at ₹ 3,200.
(e)In regard to the Debtors, the following Debts proved Bad or Doubtful—
₹ 2,000 due from X—bad to the full extent;
₹ 4,000 due from Y—insolvent, estate expected to pay only 50%.
You are required to prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the
new firm.
(Ans: Loss on Revaluation: ₹ 1,200; Partners' Capital Accounts: A: ₹ 58,280; B: ₹ 45,520; C: ₹ 25,000; Balance
Sheet Total: ₹ 1,53,000)

72. A and B are partners in a firm sharing profits and losses in the ratio of 3:2. Following is their Balance
Sheet as at 31st March, 2023:
Liabilities ₹ Assets ₹
Capital A/cs: Building 35,000
A 50,000 Machinery 25,000
B 30,000 80,000 Stock 15,000
Creditors 20,000 Debtors 15,000
Investments 5,000
Bank 5,000
1,00,000 1,00,000
C is admitted as a partner on 1st April, 2023 on the following terms:
(a) C is to pay ₹ 20,000 as capital for 1/4th share. He also pays ₹ 5,000 as premium for goodwill.
(b) Debtors amounted to ₹ 3,000 is to be written off as bad and a Provision of 10% is created against
Doubtful Debts on the remaining amount.
(c) No entry has been made in respect of a debt of ₹ 300 recovered by A from a customer, which was
previously written off as bad in previous year. The amount is to be paid by A.
(d) Investments are taken over by B at their market value of ₹ 4,900 against cash payment.
You are required to prepare Revaluation Account, Partners' Capital Accounts and new Balance Sheet.
(Ans: Loss on Revaluation: ₹ 4,000; Partners' Capital A/c’s: A: ₹ 50,300; B: ₹ 30,400; C: ₹ 20,000; Balance Sheet
Total: ₹ 1,20,700)

73. X and Y are partners sharing profits and losses in the ratio of 5:3. Their Balance Sheet as at 31st March,
2023 is:
Liabilities ₹ Assets ₹
Capital A/cs: Furniture 40,000
X 40,000 Patents 10,000
Y 50,000 90,000 Sundry Debtors 44,000
General Reserve 14,000 Less: Provision for BD 5,000 39,000
Sundry Creditors 30,000 Stock 20,000
Cash at Bank 22,000
Cash in Hand 3,000
1,34,000 1,34,000
On 1st April, 2023, they take Z into the partnership on the following terms:
(a) Z brings in ₹ 25,000 as his capital but cannot bring in ₹ 3,600 as his share of goodwill.
(b) Patents are written off from the books.
(c) General Reserve will appear in the books of the new firm at its original figure.
(d) A Provision for Doubtful Debts is to be maintained @ 5% on Sundry Debtors.
(e) The new profit-sharing ratio of X, Y and Z is 2:4:1.
You are required to show Revaluation Account, Partners' Capital Accounts and Balance Sheet of the
new firm.

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(Ans: Loss on Revaluation: ₹ 7,200; Partners' Capital A/c’s: X: ₹ 48,800; Y: ₹ 39,600; Z: ₹ 19,400; Balance Sheet
Total: ₹ 1,51,800; Goodwill adjustment: Dr. Y: ₹ 4,950 and Z: ₹ 3,600; Cr. X: ₹ 8,550)

74. X and Y are partners sharing profits and losses in the ratio of 3/4 and 1/4. Their Balance Sheet as at
31st March, 2023 is:
Liabilities ₹ Assets ₹
Capital A/cs: Land and Building 1,25,000
X 1,50,000 Office Furniture 5,000
Y 80,000 2,30,000 Stock 1,00,000
Workmen Comp. Reserve 20,000 Sundry Debtors 80,000
Sundry Creditors 1,50,000 Bills Receivable 15,000
Bills Payable 37,500 Cash at Bank 1,00,000
Cash in Hand 12,500
4,37,500 4,37,500
They admit Z into partnership on 1st April, 2023 on the following terms;
(a) The goodwill is to be valued at ₹ 1,00,000.
(b) Stock and Furniture to be reduced by 10%.
(c) A Provision for Doubtful Debts is to be created @ 5% on Sundry Debtors.
(d) The value of Land and Building is to be appreciated by 20%.
(e) No compensation is payable to workmen.
(f) Z pays ₹ 50,000 as his capital for 1/5th share in the future profits.
You are required to show Revaluation Account, Partners' Capital Accounts and Balance Sheet of the
new firm.
(Ans: Profit on Revaluation: ₹ 10,500; Partners' Capital A/c’s: X: ₹ 1,87,875; Y: ₹ 92,625; Z: ₹ 30,000; Balance
Sheet Total: ₹ 4,98,000)

Adjustment of Capitals

75. Following is the Balance Sheet of A and B as at 31st March, 2023:

Liabilities ₹ Assets ₹
Creditors 13,000 Bank 15,000
Employees' Provident Fund 8,000 Debtors 22,000
Workmen's Compensation Fund 15,000 Less: Provision for
Doubtful Debts 1,000 21,000
Capital A/cs: Stock 10,000
A 55,000 Plant and Machinery 60,000
B 30,000 85,000 Goodwill 10,000
Profit and Loss 5,000
1,21,000 1,21,000
C was admitted as a partner for 1/4 share in the profits of firm. It was decided that:
(a) Bad Debts amounted to ₹ 1,500 will be written off.
(b) Stock worth ₹ 8,000 was taken over by A and B at Book Value in their profit-sharing ratio. The
remaining stock was valued at ₹ 2,500.
(c) Plant and Machinery and Goodwill were valued at ₹ 32,000 and ₹ 20,000 respectively.
(d) C brought his share of goodwill in cash.
(e) C will bring proportionate capital and the capitals of A and B will be adjusted in their profit-
sharing ratio by bringing in or paying off cash as the case may be.
Prepare Revaluation Account and Partners' Capital Accounts.
(Ans: Loss on Revaluation: ₹ 28,000; Partners' Capital A/c’s: A: ₹ 27,000; B: ₹ 27,000; C: ₹ 18,000; Balance
Sheet: ₹ 93,000)

76. A and B were carrying on business in partnership sharing profits in the ratio of 3:2 respectively. Their
Balance Sheet as at 31st March, 2023 was:

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Liabilities ₹ Assets ₹
A's Capital 50,000 Land and Building 25,000
B's Capital 25,000 Furniture 10,000
Creditors 16,000 Stock 46,000
Bills Payable 14,000 Debtors 20,000
Less: Provision for DD 600 19,400
Cash at Bank 4,600
1,05,000 1,05,000
C is admitted into partnership on the following terms:
(a) New profit-sharing ratio of A, B and C will be 5:3:2.
(b) Land and Building is to be appreciated by ₹ 5,000; Furniture is to be depreciated by 10%,
Provision for Doubtful Debts is to be increased by ₹ 300 and Outstanding Expenses of ₹ 200 are to
be recorded.
(c) C will bring ₹ 20,000 as his capital and ₹ 6,000 as his share of goodwill.
(d) The capitals of all the partners will be in their profit-sharing ratio; A and B making the necessary
adjustments in cash.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet immediately after
recording the above-mentioned transactions.
(Ans: Profit on Revaluation: ₹ 3,500; Capital A/c’s: A: ₹ 50,000; B: ₹ 30,000; C: ₹ 20,000; Balance Sheet Total: ₹
1,30,200)

77. A, B and C are partners sharing profits and losses in the ratio of 2:3:5. On 31st March, 2023, their
Balance Sheet was:
Liabilities ₹ Assets ₹
Creditors 64,000 Cash at Bank 18,000
Employees' Provident Fund 32,000 Bills Receivable 24,000
Profit and Loss A/c 14,000 Furniture 28,000
Capital A/cs: Stock 44,000
A 36,000 Debtors 42,000
B 44,000 Investments 32,000
C 52,000 1,32,000 Machinery 34,000
Goodwill 20,000
2,42,000 2,42,000
They admit D into partnership on the following terms:
(a) Furniture, Investments and Machinery to be depreciated by 15%.
(b) Stock is revalued at ₹ 48,000.
(c) Goodwill to be valued at ₹ 24,000.
(d) Employees' Provident Fund is to be increased by ₹ 1,800.
(e) Prepaid Salaries ₹ 800.
(f) D to bring in ₹ 36,000 towards capital for 1/6th share and Partners to readjust their Capital
Accounts on the basis of their profit-sharing ratio.
(g) D is not in a position to bring in any amount for his share of firm's goodwill. The partners decide
that the necessary adjustments should be made through D's Current Account.
Prepare Revaluation Account, Partners' Capital Accounts, Bank Account and Balance Sheet of the new
firm.
(Ans: Loss on Revaluation: ₹ 11,100; Partners' Capital Accounts: A: ₹ 36,000; B: ₹ 54,000; C: ₹ 90,000; D: ₹
36,000, A will bring ₹ 2,620; B will bring ₹ 13,930 and C will bring ₹ 44,550 in Cash. Cash at Bank: ₹ 115,100;
Balance Sheet Total: ₹ 3,13,800)

78. A and B were partners in a firm sharing profits in 3:1 ratio, they admitted C as a partner for 1/4th share
in the future profit C was to bring—₹ 60,000 for his capital. The Balance Sheet of A and B at 1st April,
2023, the date on which C was admitted, was:
Liabilities ₹ Assets ₹

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Capital A/cs: Land and Building 40,000

A 50,000 Plant and Machinery 70,000
B 80,000 1,30,000 Stock 30,000
General Reserve 10,000 Debtors 35,000
Creditors 70,000 Less: Provision for DD 1,000 34,000
Investments 26,000
Cash 10,000
2,10,000 2,10,000
The other terms agreed upon were:
(a) Goodwill of the firm was valued at ₹ 24,000.
(b) Land and Building were valued at ₹ 65,000 and Plant and Machinery at ₹ 60,000.
(c) Provision for Doubtful Debts was found in excess by ₹ 400.
(d) A liability of ₹ 1,200 included in Sundry Creditors was not likely to arise.
(e) The capitals of the partners to be adjusted on the basis of C's contribution of capital to the firm.
(f) Excess or shortfall, if any, to be transferred to Current Accounts.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.
(Ans: Profit on Revaluation: ₹ 16,600; New Ratio of A, B, C: 9:3:4; Partners' Capital Accounts: A: ₹ 1,35,000; B:
₹ 45,000 and C: ₹ 60,000; Balance Sheet Total: ₹ 3,51,950)

79. X and Y are partners sharing profits in the ratio of 2:1. Their Balance Sheet as at 31st March, 2023 was:
Liabilities ₹ Assets ₹
Sundry Creditors 25,000 Cash/Bank 5,000
General Reserve 18,000 Sundry Debtors 15,000
Capital A/cs: Stock 10,000
X 75,000 Investments 8,000
Y 62,000 1,37,000 Typewriter 5,000
Fixed Assets 1,37,000
1,80,000 1,80,000
They admit Z into partnership on the same date on the following terms:
(a) Z brings in ₹ 40,000 as his capital and he is given 1/4th share in profits.
(b) Z brings in ₹ 15,000 for goodwill, half of which is withdrawn by old partners.
(c) Investments are valued at ₹ 10,000. X takes over Investments at this value.
(d) Typewriter is to be depreciated by 20% and Fixed Assets by 10%.
(e) An unrecorded stock of Stationery on 31st March, 2019 is ₹ 1,000.
(f) By bringing in or withdrawing cash, the Capitals of X and Y are to be made proportionate to of Z
on their profit-sharing basis.
Pass Journal entries, prepare Revaluation Account, Capital Accounts and new Balance Sheet of the
firm.
(Ans: Loss on Revaluation: ₹ 11,700; Capital A/c’s: X: ₹ 80,000; Y: ₹ 40,000; Z: ₹ 40,000; Cash/Bank balance: ₹
31,700; Balance Sheet Total: ₹ 1,85,000; X brings in: ₹ 5,800; Y withdraws: ₹ 26,600)

80. X and Y are partners in a firm. They share profits and losses as X—3/5th and Y—2/5. Their Balance
Sheet as on 1st April, 2023 is given below:
Liabilities ₹ Assets ₹
Creditors 2,60,000 Land and Building 3,00,000
Bills Payable 2,40,000 Plant and Machinery 4,00,000
Capitals A/cs: Patents 1,60,000
X 7,00,000 Stock 2,50,000
Y 3,50,000 10,50,000 Debtors 3,00,000
Less: Provision for 6,000 2,94,000
Doubtful Debts
Cash at Bank 1,46,000
15,50,000 15,50,000

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They agree to admit Z into partnership on the following basis:

(a) Z will pay ₹ 3,00,000 as capital and the Capital Accounts of other partners to be adjusted in their
new profit-sharing ratio on the basis of Z's Capital.
(b) Goodwill of the firm is valued at ₹ 2,50,000. Z fails to bring his share of goodwill.
(c) Plant and Machinery is to be depreciated by 15%, stock by ₹ 40,000, land and buildings are to be
appreciated by ₹ 1,60,000.
(d) New profit-sharing ratio will be 5 : 3 : 2.
Prepare new Balance Sheet of the firm and Capital Accounts of the Partners.
(Ans: Sacrificing Ratio:- 1:1; Revaluation Profit: ₹60,000; Partners' Capital Accounts: X: ₹ 7,50,000; Y: ₹
4,50,000 and Z: ₹ 3,00,000; Z's Current A/c: ₹ 50,000 (Dr.); Cash Balance at Bank: ₹ 4,86,000; Balance Sheet
Total: ₹ 20,00,000)

81. Suresh and Ramesh were partners in a firm sharing profits in the ratio of 5:3. On 31.03.2023 they
admitted Dinesh as a new partner for 1/5th share in the profits. The new profit-sharing ratio was 5:3:2.
On Dinesh's admission the Balance Sheet of the firm was as follow:
Liabilities ₹ Assets ₹
Capitals: Land and Building 1,50,000
Suresh: 1,50,000 Machinery 40,000
Ramesh: 90,000 2,40,000 Patents 5,000
Provision for bad debts 1,200 Stock 27,000
Creditors 20,000 Debtors 47,000
Workmen Comp. Fund 32,000 Cash 4,200
Profit and Loss Account 20,000
2,93,200 2,93,200
On Dinesh's admission it was agreed that:
(a) Dinesh will bring ₹ 40,000 as his capital and ₹ 16,000 for his share of goodwill premium, half of
which was withdrawn by Suresh and Ramesh;
(b) A provision of 2.5% for bad and doubtful debts was to be created;
(c) Included in the sundry creditors was an item of ₹ 2,500 which was not to be paid.
(d) A provision was to be made for an outstanding bill for electricity ₹ 3,000.
(e) A claim of ₹ 325 for damages against the firm was likely to be admitted. Provision for the same was
to be made.
After the above adjustments, the capitals of Suresh and Ramesh were to be adjusted on the basis of
Dinesh's capital. Actual cash was to be brought in or to be paid off to Suresh and Ramesh as the case
may be. Prepare Revaluation Account, Capital Accounts of the partners and the Balance Sheet of the
new firm.
(Ans: Revaluation loss: ₹ 800; Partners' Capital: Suresh: ₹ 1,00,000, Ramesh: ₹ 60,000 and Dinesh: ₹ 40,000;
Total of Balance Sheet: ₹ 2,67,825)

82. A firm has two partners X and Y, sharing profits in the ratio of 3:2. They admit Z into the firm on 1st
Jan 2023, when the Balance Sheet of the firm was as follows:
Liabilities ₹ Assets ₹
X's Capital 3,00,000 Fixed Assets 3,60,000
Y's Capital 1,00,000 Investments 90,000
General Reserve 75,000 Debtors 40,000
Creditors 70,000 Stock 60,000
Bills Payable 25,000 Cash 20,000
5,70,000 5,70,000
Terms of admission are as follows: -
(a) Z is to bring ₹ 2,00,000 as his capital for a third share in future profits and ₹ 35,000 as his share of
goodwill.
(b) Value of Fixed Assets and Stock are to be reduced by 20% and ₹ 10,000 respectively.

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(c) Capital of the partners shall be proportionate to their profit-sharing ratio, taking Z's Capital as base.
Excess capital is to withdrawn in cash by the partner concerned and the deficiency is to be made up
by bringing in cash.
Prepare Partners' Capital Accounts and the Balance Sheet of the firm after the above adjustments.
(Ans: Loss on Revaluation: ₹ 82,000; Capitals: X: ₹ 2,40,000; Y: ₹ 1,60,000 and Z: ₹ 2,00,000; Total of Balance
Sheet: ₹ 6,95,000)

83. Mohan and Sohan are in partnership sharing profits in the proportion of 3/5th and 2/5th respectively.
They decide to admit Rohan for 1/3rd share upon the terms that he is to pay into the business ₹ 1,000
as Goodwill and sufficient Capital to give him a 1/3rd share of the total capital of the new firm. It was
agreed that the Reserve for Bad Debts be reduced to ₹ 100 and the Stock be revalued at ₹ 2,000 and that
the Plant be reduced to ₹ 500. Their Balance Sheet as at 31st March, 2023 was:
Liabilities ₹ Assets ₹
Mohan's Capital 2,000 Plant 650
Sohan's Capital 1,000 Cash 650
Creditors 400 Debtors 1,000
Less: Prov. for B/Debts 400 600
Stock 1,500
3,400 3,400
You are required to record the above in the Ledgers of the firm and show new Balance Sheet.
(Ans: Balance Sheet Total: ₹ 7,375; Revaluation Profit: ₹ 650)

84. A and B are partners in a firm sharing profits and losses in the ratio 3:1. They admit C for 1/4th share
on 31st March, 2023 when their Balance Sheet was as follows:
Liabilities ₹ Assets ₹
Employees' Provident Fund 17,000 Cash 6,100
Workmen Comp. Reserve 6,000 Stock 15,000
Investment Fluctuation Reserve 4,100 Debtors 50,000
Capital A/cs: A 54,000 Less: Provision for 2,000 48,000
Doubtful Debts
B 35,000 Investments 7,000
Goodwill 40,000
1,16,100 1,16,100
The following adjustments were agreed upon:
(a) C brings in ₹ 16,000 as goodwill and proportionate capital.
(b) Bad debts amounted to ₹ 3,000,
(c) Market value of investment is ₹ 4,500.
(d) Liability on account of workmen compensation reserve amounted to ₹ 2,000.
Prepare Revaluation A/c and Partners' Capital Accounts.
(Ans: Loss on Revaluation: ₹ 1,000; Capital A/c’s: A: ₹39,450; B: ₹ 30,150; C: ₹ 23,200; Balance Sheet: ₹
1,11,800)

85. Raman and Karan were partners in a firm sharing profits in the ratio of 3:1. Their Balance Sheet on
31st March, 2023 was:
Liabilities ₹ Assets ₹
Creditors 30,000 Cash 4,000
Bills Payable 1,000 Debtors 50,000
Reserve Fund 16,000 Less: Provision for DD 5,000 45.000
Outstanding Salary 3,000 Stock 30,000
Capital A/cs: Bills Receivable 10,000
Raman 60,000 Patents 1000
Karan 20,000 80,000 Machinery 40,000
1,30,000 1,30,000

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They admitted Abhay as a new partner on this date. New profit-sharing ratio is agreed as 3:2:3. Abhay
brings in proportionate capital after the following adjustments:
(a) Abhay brings ₹ 16,000 as his share of goodwill.
(b) Provision for Doubtful Debts is to be reduced by ₹ 2,000.
(c) There is an Old Typewriter valued at ₹ 2,400. It does not appear in the books of the firm. It is now
to be recorded.
(d) Patents are valueless.
Prepare Revaluation Account, Capital Accounts and opening Balance Sheet of Raman, Karan and
Abhay.
(Ans: Profit on Revaluation: ₹ 3,400; Balance Sheet Total: ₹ 2,18,640; Cash brought by Abhay: ₹ 69,240 + ₹
16,000 (Goodwill) = ₹ 85,240)

86. Following is the Balance Sheet of X and Y as at 31st March, 2023, Z is admitted as a partner at that
date when the position of X and Y was:
Liabilities ₹ Assets ₹
X's Capital 10,000 Cash in Hand 9,000
Y's Capital 8,000 Debtors 11,000
Creditors 12,000 Stock 12,000
General Reserve 16,000 Building 8,000
Workmen Comp. Reserve 4,000 Machinery 10,000
50,000 50,000
X and Y share profits in the proportion of 3:2. The following terms of admission are agreed upon:
(a) Revaluation of assets: Building ₹ 18,000; Stock ₹ 16,000.
(b) The liability on Workmen Compensation Reserve is determined at ₹ 2,000.
(c) Z brought in as his share of goodwill ₹ 10,000 in cash.
(d) Z was to bring in further cash as would make his capital equal to 20% of the combined capital of X
and Y after above revaluation and adjustments are carried out.
(e) The future profit-sharing proportions were: X—2/5th, Y—2/5th and Z— 1/5th.
Prepare new Balance Sheet of the firm and Capital Accounts of the Partners.
(Ans: Revaluation Profit: ₹ 14,000; Capital Accounts: X: ₹ 39,200; Y: ₹ 20,800; Z: ₹ 12,000; Balance Sheet Total:
₹ 86,000)

87. Chris and Harris were partners in a firm sharing profits and losses in the ratio of 4:3. The following is
the Balance Sheet of the firm as at 31st March, 2023:
Liabilities ₹ Assets ₹
Sundry Creditors 20,000 Cash 14,800
Bills Payable 3,000 Debtors 20,500
Bank Overdraft 17,000 Less: Provision for 300 20,200
Doubtful Debts
Capital A/cs: Stock 20,000
Chris 70,000 Plant 40,000
Harris 60,000 1,30,000 Building 75,000
1,70,000 1,70,000
They agreed to admit Tom as partner with effect from 1st April, 2023 with 1/4th share in profits on the
following terms:
(a) Tom will bring in capital to the extent of 1/4th of the total capital of the new firm after all
adjustments have been made.
(b) Building is to be appreciated by ₹ 14,000 and Plant to be depreciated by ₹ 7,000.
(c) The provision for doubtful debts on Debtors is to be raised to ₹ 1,000.
(d) Tom will bring in ₹ 21,000 as his share of goodwill.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the firm immediately
after Tom's admission.
(Ans: Profit on Revaluation: ₹ 6,300; Balance Sheet Total: ₹ 2,49,733)

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88. A and B were partners sharing profits in the ratio of 2:1. C was admitted on 1st April 2023 as a partner.
The Balance Sheet of A and B before C's admission was as follows:
Liabilities ₹ Assets ₹
Bills Payable 35,000 Cash 20,000
Sundry Creditors 25,000 Bills Receivable 30,000
Employee's Provident Fund 25,000 Building 70,000
Reserve 15,000 Car 50,000
A's Capital 60,000 Plant 30,000
B's Capital 40,000
2,00,000 2,00,000
The following terms were agreed upon:
(a) C pays 20% of the combined adjusted capitals of A and B as his share of capital. C also pays ₹
30,000 for goodwill for 1/4th share in profits.
(b) Building was to be revalued at ₹ 90,000 and Car at ₹ 82,000. Plant was to be written down to ₹
20,000.
Prepare Revaluation Account, Partners' Capital Accounts and the Balance Sheet of the new firm.
(Ans: Revaluation Profit: ₹ 42,000; Capitals: A: ₹ 1,18,000, B: ₹ 69,000, C: ₹ 37,400; Total of Balance Sheet: ₹
3,09,400)

89. Rita and Sita were partners in a firm sharing profits in the ratio of 3:2. On 1st April, 2023, they
admitted Gita as a new partner for 1/5th share in the profits of the firm. The Balance Sheet of Rita and
Sita as on 1st April, 2023 was a follow:
Liabilities ₹ Assets ₹
Capital A/cs: Land and Building 2,10,000
Rita 4,80,000 Plant 2,70,000
Sita 2,10,000 6,90,000 Stock 2,10,000
General Reserve 60,000 Debtors 1,32,000
Workmen's Comp. Fund 1,00,000 Less: Provision 12,000 1,20,000
Creditors 90,000 Cash 1,30,000
9,40,000 9,40,000
It was agreed that
(a) the value of Land and Building will be appreciated by 20%.
(b) the value of plant be increased by ₹ 60,000.
(c) Gita will bring ₹ 80,000 for her share of goodwill premium.
(d) the liabilities of Workmen's Compensation Fund were determined at ₹ 60,000.
(e) Gita will bring in cash as capital to the extent of 1/5th share of the total capital of the new firm.
Prepare Revaluation Account Partners' Capital Accounts and Balance Sheet.
(Ans: Profit on Revaluation: ₹ 1,02,000; Partners' Capital Accounts: Rita: ₹ 6,49,200; Sita: ₹ 3,22,800; Gita: ₹
2,43,000; Cash Balance: ₹ 4,53,000; Balance Sheet Total: ₹ 13,65,000)

90. A and B are partners in a firm. They share profits and losses in the ratio 1:1. They admit C into
partnership firm on the condition that he will bring ₹ 40,000 for goodwill and proportionate capital of
the new firm. At the time of admission of C, the balance sheet of A and B was as under:
Liabilities ₹ Assets ₹
Creditors 40,000 Cash 70,000
Bills Payable 20,000 Debtors 40,000
Capitals: Stock 50,000
A 1,50,000 Furniture 20,000
B 1,60,000 3,10,000 Machinery 1,30,000
Land 60,000
3,70,000 3,70,000
It was decided to:
(a) To revalue Stock at ₹ 40,000.

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(b) To decrease Furniture by ₹ 2,000 and Machinery by ₹ 10,000.

(c) To appreciate Land by ₹ 10,000.
(d) To make Provision of ₹ 2,000 on sundry Debtors for Doubtful Debts.
(e) That new profit-sharing ratio of A, B and C will be 2:1:1.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.
(Ans: Loss on Revaluation: ₹ 14,000; Capitals: A: ₹ 1,43,000; B: ₹ 1,93,000; C: ₹ 1,12,000; Total of Balance
Sheet: ₹ 5,08,000)

91. The following is the Balance Sheet of Hari and Krishan who were sharing profits and losses in the ratio
of 5:3:
Liabilities ₹ Assets ₹
Creditors 25,000 Cash 35,000
Bills Payable 10,000 Debtors 14,000
Workmen Comp. Reserve 8,000 Bills Receivables 20,000
General Reserve 16,000 Stock 15,000
Capital Accounts: Fax Machine 7,000
Hari 40,000 Plant 20,000
Krishan 15,000 55,000 Computer 3,000
1,14,000 1,14,000
On the above date, Kanha was admitted as a third partner with the following terms:
(a) Computer and Stock were revalued at ₹ 13,000 each.
(b) Kanha shall bring ₹ 8,000 as his share of goodwill in cash.
(c) Claim on account of Workmen's Compensation is estimated at ₹ 3,000.
(d) Kanha's share shall be 1/5th in future profits.
(e) Kanha was to bring necessary amount for his share of capital.
Prepare Revaluation Account, Partners' Capital Accounts and Balance Sheet of the new firm.
(Ans: Profit on Revaluation: ₹ 8,000; Capitals: Hari: ₹ 63,125, Krishan: ₹ 28,875; Kanha: ₹ 23,000; Balance
Sheet Total: ₹ 1,53,000)

CA Manish Mahajan